Verizon pullback a blow to Canadian wireless consumers

Verizon’s decision to stay out of Canada deals a stinging blow to the government’s efforts to make the wireless market more competitive and consumer-friendly, say industry experts.

“Without someone like Verizon, what will end up happening is the Big Three will win,” says Walid Hejazi, a professor at the Rotman School of Management.

The Big Three -- Bell, Rogers and Telus -- have a combined 90 per cent market share. They have spent much of the summer telling consumers through an ad campaign that Verizon’s entry into the wireless market would be “unfair” and cost Canadian jobs.

Meanwhile, critics of the Canadian telecom industry said the entry of Verizon would force the Big Three to offer better services and rates.

On Monday, Verizon CEO Lowell McAdam ended the feverish speculation when he told Bloomberg news service that his company, which has more than 100 million wireless subscribers, would not be coming to Canada.

McAdam made the comments after announcing that Verizon would be paying $130 billion US to buy the 45 per cent stake in Verizon Wireless currently held by British telecom Vodafone.

Greg O’Brien, editor and publisher of Cartt.ca, a news site about the Canadian telecom and electronic media industries, says the possibility of Verizon entering the market was always tenuous and fed by the wishful thinking of Canadian consumers.

“Verizon’s interest was never really all that real,” says O’Brien.

“They were just kicking the tires at Wind and Mobilicity and [considering buying] some spectrum because these are all assets that would maybe provide them with some growth. And they decided in the end that it just wouldn’t.”

Government seeking greater competition

The federal government has stated that it would like to see more competition in the Canada’s wireless market, and has been taking a number of regulatory steps to nudge this along.

It stages auctions periodically to sell telecom companies the rights to transmit signals over the electromagnetic spectrum. The federal government reserved about 40 per cent of the 2007 spectrum auction for new entrants, which led to the launch in 2008 of Wind Mobile and Mobilicity, which are co-owned by Egyptian and Dutch firms, respectively.

More recently, the federal government has said it would like to see four competing wireless companies in every market across Canada.

To that end, it relaxed ownership rules last year to allow a foreign corporation wanting to enter a specific business sector in Canada to buy companies with less than 10 per cent market share.

Bell, Rogers and Telus went on the offensive earlier this summer after reports emerged that U.S. giant Verizon had offered to buy Canadian upstart Wind Mobile for $700 million. The Big Three undertook a public relations campaign that argued the federal government was giving foreign companies preferential treatment.

The government countered with a PR campaign of its own. Industry Minister James Moore travelled across the country telling consumers that allowing foreign ownership would increase competition and lower wireless rates in Canada, which are among the highest in the world.

Despite Verizon’s decision not to proceed in Canada, Hejazi said he is “encouraged” by the fact that the government is going to continue with its pro-competition strategy for the next wireless spectrum auction, which will take place in January 2014.

The Canadian government has said foreign-owned companies would be able to buy two of four blocks in the 2013 auction, leaving Bell, Rogers and Telus to bid on the other two blocks.

Tiny market

However, it’s unclear whether any foreign-owned companies are currently interested in bidding on the blocks of 700 mHz spectrum.

Between the three of them, Bell, Rogers and Telus control more than 90 per cent of Canada’s 26.9 million wireless subscribers. In global terms, this is a tiny market.

Kevin O’Leary, the chair of O’Leary Funds and one of the judges on Dragon’s Den, told CBC’s Heather Hiscox on Tuesday that to a company the size of Verizon, the Canadian wireless market is a “rounding error and it’s completely irrelevant.”

O’Brien says that the Canadian market is still appealing to foreign-owned companies, but “the market opportunity available now is not.”

Hejazi says that Verizon was likely frightened off by the prospect of aggressive lobbying efforts by Bell, Rogers and Telus in a comparatively small market.

“They don’t want to come into Canada and fight Telus, Rogers and Bell at every turn,” says Hejazi.

Hejazi recently finished work on a study commissioned by the Ministry of Foreign Affairs and International Trade looking into the impact of reducing restrictions on foreign investment in telecommunications, finance and transportation.

The study, which Hejazi says is expected to be released later this year, suggests that by increasing competition, foreign ownership not only improves service and lowers prices, but makes the Canadian economy as a whole more competitive.

But given that the deposits for the Jan. 14 spectrum auction are due by Sept. 16, O’Brien says it’s unlikely that another major player will step into the fray.

And due to loopholes in the regulation of the wireless industry, it’s conceivable that one or more of the Big Three could still gain access to some of the 700 mHz spectrum reserved for smaller players by leasing it from the successful bidders.

While Minister Moore has vowed to seek greater competition in the wireless market, O’Brien says that the process should have begun long ago.

“The point I’ve been making for a long time is that the federal government should have started making the foreign investment liberalization before the 2007 wireless spectrum auction, because now the industry is completely hamstrung.”